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CIRCULAR

Guiding the tax exemption for fishing and making of unprocessed salt and the tax reduction for business establishments employing ethnic minority laborers from 2006 through 2010

Pursuant to Resolution No. 47/2005/QH11 of November 1, 2005, of the XIth National Assembly, the 8th session, on the 2006 state budget estimates;

Pursuant to the Government’s Resolution No. 01/2006/NQ-CP of January 16, 2006, on major solutions to directing and administering the implementation of the 2006 socio-economic plan and state budget;

Pursuant to the Government’s Decree No. 77/2003/ND-CP of July 1, 2003, defining the functions, tasks, powers and organizational structure of the Ministry of Finance;

Based on the Prime Minister’s directions in the Government Office’s Official Letter No. 3321/VPCP-KTTH of June 22, 2006,

The Ministry of Finance hereby guides the exemption from license tax, natural resource tax and enterprise income tax on fishing and making of unprocessed salt and the reduction of enterprise income tax for business establishments employing ethnic minority laborers from 2006 through 2010 as follows:

I. Exemption from license tax, natural resource tax and enterprise income tax on fishing and making of unprocessed salt

1. Subjects and scopes of tax exemption

1.1. Entities eligible for tax exemption

Organizations and individuals (referred to as business establishments for short) engaged in fishing or making unprocessed salt shall be eligible for exemption from license tax, natural resource tax and enterprise income tax under the guidance in this Circular, including:

- Enterprises established and making business registration under the Enterprise Law, the State Enterprise Law, the Investment Law, and the Law on Foreign Investment in Vietnam;

- Cooperatives established and making business registration under the Cooperative Law;

- Individuals, households and cooperative members performing jobs assigned by cooperatives and paying license tax according to Point 2, Section I of the Finance Ministry’s Circular No. 96/2002/TT-BTC of October 24, 2002, guiding the implementation of the Government’s Decree No. 75/2002/ND-CP of August 30, 2002, on the adjustment of license tax rates.

1.2. Scope of tax exemption

- Fishing eligible for tax exemption shall only be exploitation of natural products from the sea (both onshore and offshore), excluding exploitation of freshwater resources; aquaculture; service activities in support of fishing (supply of fishing gear, freshwater, ice water, petrol and oil); trading in and processing of marine products.

- Making of unprocessed salt eligible for tax exemption shall only be making of salt from seawater, excluding salt trading or processing of salt into refined salt products (such as iodized salt, fine salt, etc.).

2. Taxes to be exempted

2.1. License tax

From 2006 through 2010, business establishments engaged in fishing and making of unprocessed salt shall be eligible for license tax exemption.

Where a business establishment engaged in fishing or making of unprocessed salt carries out other business activities but has only one business license, it shall also enjoy license tax exemption.

Where a business establishment has many dependent units (branches or shops) which pay their own license tax, license tax shall be exempted only for the unit directly engaged in fishing and making of unprocessed salt.

2.2. Natural resource tax

From 2006 through 2010, business establishments engaged in fishing or making of unprocessed salt, regardless of their operation scale and location, shall enjoy natural resource tax exemption.

2.3. Enterprise income tax

From 2006 through 2010, business establishments shall be eligible for enterprise income tax exemption for fishing and making of unprocessed salt. Business establishments which carry out different production and business activities shall separately account the income from fishing and that from making of unprocessed salt for use as a basis for enterprise income tax exemption.

Where it is impossible to account separately the income from fishing and that from making of unprocessed salt, the income from the activity eligible for tax exemption shall be determined based on the proportion of the turnover of such activity to the total turnover of the business establishment, specifically as follows:

Tax-exempt The business Turnover from fishing or
income from establishment’s total making unprocessed salt
fishing or = income subject to x ------------------------------------------------------------------------
making enterprise income tax The business establishment’s
unprocessed salt in the tax period total turnover in the tax period

For business establishments which carry out all activities from fishing to processing of marine products or from making unprocessed salt to processing of salt into other products such as soup base, the tax-exempt income from fishing or making of unprocessed salt shall be determined based on the proportion of the production cost in such activity to the total reasonable expense of the business establishment, specifically as follows:

Tax-exempt The business Production cost of fishing or
income establishment’s making unprocessed salt
from fishing = total income subject to x ---------------------------------------------------------------------------------
or making enterprise income tax The business establishment’s total
unprocessed salt in the tax period reasonable expense in the tax period

3. Tax exemption procedures

3.1. For individuals and households engaged in fishing or making unprocessed salt

When making tax records in the 2006-2010 period, tax authorities shall neither calculate nor collect license tax, natural resource tax or enterprise income tax with respect to individuals and households engaged in fishing or making unprocessed salt. Where 2006 tax records have been made for these individuals and households, adjustment shall be made at the year-end.

3.2. For organizations engaged in fishing or making of unprocessed salt

Annually, organizations shall determine by themselves to be-exempted amounts of license tax, natural resource tax and enterprise income tax and declare them with tax authorities according to current regulations. Business establishments which carry out different activities or carry out business activities simultaneously in different stages shall determine by themselves to be-exempted enterprise income tax amounts on fishing or making of unprocessed salt according to Appendix No. 1A to this Circular (not printed herein) and enclose them with declarations on self-finalization of enterprise income tax.

II. Enterprise income tax reduction for business establishments employing ethnic minority laborers

1. Subjects and principles of tax reduction

Business establishments which fully meet the conditions set in Clause 2, Section II of this Circular shall be eligible for enterprise income tax reduction, including enterprise set up and making business registration under the Enterprise Law, the State Enterprise Law, the Investment Law, and the Law on Foreign Investment in Vietnam; cooperatives set up and making business registration under the Cooperative Law; and individual business households.

State-owned agricultural and forestry enterprises which employ ethnic minority laborers lawfully residing in the Central Highlands provinces and enjoy state budget supports for job-training activities under the Prime Minister’s Decision No. 231/2005/QD-TTg of September 22, 2005, shall not be eligible for enterprise income tax reduction under this Circular, except where they apply forms of training ethnic minority laborers other than the job-training forms for which the state budget supports have been provided.

Expenses on job training for ethnic minority laborers which arise in the period from 2006 through 2010, shall be considered expenses paid for the state budget, which business establishments shall not account as reasonable expenses but shall deduct them from payable enterprise income tax amounts in each tax period. Where in the tax periods from 2006 through 2010, business establishments do not have any payable enterprise income tax amounts or cannot fully deduct the actual expenses on job training for ethnic minority laborers, they may transfer the remainder for deduction from the payable enterprise income tax amounts in subsequent tax periods until such expenses are fully deducted.

2. Conditions for tax reduction

To enjoy enterprise income tax reduction, business establishments must fully satisfy the following three conditions:

- Employing ethnic minority laborers;

- Paying expenses on job training for ethnic minority laborers;

- Making accounting books, invoices and documents according to regulations.

Ethnic minority people are those of all ethnic groups (other than Kinh) and live in the Vietnamese territory. Ethnic minority shall be determined based on the laborers’ identity papers (copies of identity cards with the certification of business establishments) or their personal details included in the laborers’ dossiers, enclosed with labor contracts or collective labor agreements.

3. Bases for determination of to be-reduced tax amounts and tax reduction procedures

3.1. Bases for determination of to be-reduced enterprise income tax amounts

To be-reduced enterprise income tax amounts shall be expenses actually paid for job training for ethnic minority laborers, including:

i/ Training fee paid to training establishments, remuneration paid to teachers or professional instructors;

ii/ Expense for the purchase of books, documents and learning facilities suitable to job-training courses;

iii/ Wages or cost-of-living allowances paid to laborers in the learning duration;

iv/ Money for meal, accommodation and travel (to and from) paid to laborers who are sent for job training equivalent to the cost-of-living allowance provided for cadres and civil servants;

v/ Expenses for organizing job-training courses such as rents of training places and teaching aids.

Example 1: In 2006 Enterprise A had an enterprise income tax-liable turnover of VND 20,000 million; the reasonable expense is VND 18,000 million (excluding the expense on job training for ethnic minority laborers). In the year, Enterprise A employed ethnic minority laborers and paid VND 160 million for job training for such laborers. The enterprise’s business activities are subject to enterprise income tax at the rate of 28%. Enterprise A shall enjoy enterprise income tax reduction thanks to receiving and providing job training for ethnic minority laborers as follows:

+ Taxable income in the year: VND 20,000 million - VND 18,000 million = VND 2,000 million

+ Payable enterprise income tax amount under regulations (excluding the to be-reduced amount): VND 2,000 million x 28% = VND 560 million

+ The to be-reduced enterprise income tax amount in proportion to the actual expense on job training for ethnic minority laborers shall be VND 160 million. Enterprise A shall pay an enterprise income tax amount of VND 560 million - VND 160 million = VND 400 million.

For job training courses participated by laborers other than ethnic minority people, business establishments shall only enjoy tax reduction in proportion to the actual expense for ethnic minority laborers. Where business establishments cannot separately account the job-training expense for these laborers, tax reduction shall be based on the percentage (%) between the number of ethnic minority laborers and the total number of participants in job-training courses.

Example 2: In 2006 Enterprise B paid VND 600 million on job training for 120 newly employed laborers, including 80 ethnic minority laborers. Therefore, the job-training expense for ethnic minority laborers, which serves as a basis for determination of the to be-reduced enterprise income tax amount, shall be VND 400 million {VND 600 million x 80/120}.

3.2. Tax reduction procedures

Annually, basing themselves on job-training demands, business establishments shall project the job-training funds for ethnic minority laborers and the job-training expenses not yet fully deducted from previous periods’ payable tax amounts and register with their managing tax authorities enterprise income tax amounts projected to be reduced, enclosed with enterprise income tax declarations (made according to Form No. 02A/TNDN promulgated together with the Finance Ministry’s Circular No. 128/2003/TT-BTC of December 22, 2003) or the lists of quarterly payable enterprise income tax amounts (made according to Form No. 03-TNDN-TKTN promulgated together with the Finance Ministry’s Circular No. 127/2003/TT-BTC), for business establishments which make tax self-assessment.

At the end of a fiscal year, based on the actual expenses on job training for ethnic minority laborers and the job-training expenses not yet fully deducted from previous periods’ payable tax amounts, business establishments shall determine by themselves the amounts of to be-reduced enterprise income tax according to Appendix No. 2A to this Circular (not printed herein) and include them in declarations on self-finalization of enterprise income tax.

III. Organization of implementation

1. Tax authorities at all levels shall consider and inspect entities eligible for tax exemption under this Circular in order not to collect license tax, natural resource tax and enterprise income tax from 2006 through 2010.

2. Where business establishments engaged in fishing or making unprocessed salt had remitted license tax, natural resource tax and enterprise income tax into the state budget before the issuance of this Circular, tax authorities shall refund the paid tax amounts to them. Tax refund procedures shall comply with the Finance Ministry’s Circular No. 68/2001/TT-BTC of August 24, 2001, guiding the refund of amounts remitted into the state budget.

3. Organizations and individuals conducting offshore fishing eligible for natural resource tax exemption or reduction under Point 3, Section IV of the Finance Ministry’s Circular No. 153/1998/TT-BTC of November 26, 1998, guiding the implementation of the Government’s Decree No. 68/1998/ND-CP of September 3, 1998, which details the implementation of the Ordinance on Natural Resource Tax (amended) may opt for tax exemption under this Circular’s guidance through 2010 or under Circular No. 153/1998/TT-BTC. Where by the end of 2010 business establishments are still eligible for natural resource tax exemption under Circular No. 153/1998/TT-BTC, they shall continue to enjoy natural resource tax exemption or reduction for the remaining duration.

4. By June 1 every year (from 2007 on), provincial/municipal Tax Departments shall report the tax exemption for fishing and making of unprocessed salt and the reduction of enterprise income tax with respect to job training for ethnic minority laborers to the Finance Ministry (the General Department of Taxation and the Tax Policy Department) and People’s Committees of the same level for synthesis and report to the Government.

5. This Circular shall take effect 15 days after its publication in “CONG BAO.” Any guidance contrary to this Circular shall hereby be annulled. Any problems arising in the course of implementation should be reported to the Finance Ministry for study and additional guidance.